PITI

PITI is shorthand for the four standard components of a monthly housing payment: principal (the portion that pays down the loan balance), interest (the portion that pays the lender for the use of the loan), taxes (property taxes, typically held in lender escrow and paid twice yearly), and insurance (homeowners insurance, also typically escrowed and paid annually).

How it works: the principal-and-interest portion is fixed for fixed-rate loans and computed by the standard amortization formula. The tax and insurance portions get added in via escrow, each month, the borrower pays roughly 1/12 of the annual tax bill and 1/12 of the annual insurance premium into an escrow account held by the lender, which then pays the actual bills when due. The total of all four is the monthly housing payment shown on the Loan Estimate.

Why it matters: PITI is the right number for affordability calculations, not just principal-and-interest alone. A "$2,200 monthly payment" advertised as P&I can become $2,800 once taxes and insurance are folded in, sometimes 30 to 50 percent more than the headline. Lenders qualify borrowers against PITI, not P&I, which is why the affordability calculator at /tools/affordability uses PITI as its target.

Common gotcha: PITI sometimes gets extended to include other recurring housing costs that don't fit cleanly into the four letters, PMI or MIP (mortgage insurance), HOA dues, special assessments. The extended figure (PITIA, occasionally) is closer to the borrower's actual monthly housing outflow. The Loan Estimate's "Estimated Total Monthly Payment" line shows the lender's full version of the calculation.